Citi: Cuts Brilliance China (01114) Target Price to HK$1.94; Third-Quarter BMW Joint Venture Margin Decline Year-on-Year Remains Manageable

Citi issued a research report stating that it has cut the target price for Brilliance China (01114) from HK$2.55 to HK$1.94, believing that the margin decline at BMW Brilliance is manageable, and maintaining a "Neutral/High Risk" rating. The bank noted that BMW's third-quarter results were mixed, with BMW Brilliance sales down 30% year-on-year, dealer incentive support continuing, and increased capital expenditure likely to drive up depreciation expenses. The bank estimates that under HKAS (excluding the 300 million purchase price allocation charge), BMW Brilliance's third-quarter pre-tax margin was approximately 7.3%, down 1.8 percentage points year-on-year and up 3.3 percentage points quarter-on-quarter; third-quarter net profit may have fallen 46% year-on-year, a slight improvement from the 53% year-on-year decline in the first half. Citi believes that Brilliance China's cost-saving strategy can mitigate the impact of the joint venture's revenue decline of approximately 30% year-on-year, with the pre-tax margin down only 1.8 percentage points year-on-year, broadly in line with market expectations. Looking ahead to the fourth quarter, the bank expects the operating environment to remain challenging; assuming revenue grows 7% quarter-on-quarter during the peak sales season and a pre-tax margin of 3.9%, and after adjusting its 2027 and 2028 BMW Brilliance sales forecasts to 356,000 units each, it has lowered its net profit forecasts for 2026 to 2028 by 5% to 9%, to RMB1.307 billion, RMB1.04 billion, and RMB1.055 billion, respectively.